Integrated Personnel Services' (NSE:IPSL) Promising Earnings May Rest On Soft Foundations

Integrated Personnel Services Limited (NSE:IPSL) announced strong profits, but the stock was stagnant. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

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One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Integrated Personnel Services expanded the number of shares on issue by 19% over the last year. Therefore, each share now receives a smaller portion of profit. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. You can see a chart of Integrated Personnel Services' EPS by clicking here.

How Is Dilution Impacting Integrated Personnel Services' Earnings Per Share (EPS)?

Integrated Personnel Services has improved its profit over the last three years, with an annualized gain of 120% in that time. But EPS was only up 31% per year, in the exact same period. And at a glance the 51% gain in profit over the last year impresses. But in comparison, EPS only increased by 21% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Integrated Personnel Services can grow EPS persistently. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Integrated Personnel Services.

Our Take On Integrated Personnel Services' Profit Performance

Each Integrated Personnel Services share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Integrated Personnel Services' statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 31% over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing Integrated Personnel Services at this point in time. To that end, you should learn about the 4 warning signs we've spotted with Integrated Personnel Services (including 2 which are concerning).

Today we've zoomed in on a single data point to better understand the nature of Integrated Personnel Services' profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.